Now that we've reached the lowest mortgage interest rates in history, with advertised rates under 4%, you would think that housing is poised for a recovery. You would if you're an economist, or a politician, but not if you are an ordinary member of the struggling middle class.
What the politicians, economists and pundits all seem to be missing in their optimistic predictions of a coming housing recovery is the simple fact that middle class america is still under financial assault. Home buyers are not staging a boycott of housing until rates come down. We don't have a market full of anxious home buyers holding out for 3.5% mortgage rates.
We have a middle class that is currently in decline. Alvin Toffler's landmark book, "Future Shock", written in the early 1970's, foresaw a world in which technology would eventually reduce the need for human workers. Today we are seeing many of Toffler's predictions coming true, and the changes have weakened the financial power of the American middle class to a great extent. As a result, we have a middle class that is no longer able to afford to buy a home in numbers large enough to foster an economic recovery. Many who can afford it financially, can't meet the strict qualifying criteria currently in place.
Frustrated home owners who lost their job and then lost their home to foreclosure are learning to be tenants again. Millions of unemployed Americans are learning to live with mom and dad again, as families combine households in order to pool income to make ends meet. Millions of under-employed workers are learning to live with lower incomes. I've assisted dozens of under-employed folks in housing and construction related jobs who've seen their income drop more than 50% since 2008. They are underwater on their mortgages, struggling to make payments on homes that have lost more than 50% of their value.
The plain fact of the matter is that the housing industry has a much deeper problem than mortgage rates. Their primary source of customers is in deep financial trouble.
In 2011, it takes $422.31 to buy what $100 would buy in 1975. A mortgage payment of $200 in 1975 costs $844.62 today. Add to that number another $250 for taxes and insurance. Home maintenance costs even more. The largest generation in the history of the United States is losing the ability to keep up. Today's high cost of home ownership means that housing is in no danger of a recovery any time soon.
The federal government continues to nibble at the edges of the problem, by coming up with useless ideas such as HUD's recent plan to assist homeowners, which was a complete waste of time and effort, because it was very difficult to qualify for the assistance offered, and delays in rolling out the program meant that underwater home owners had very little time to apply for the program before it expired.
The government has also left it to the banks and mortgage servicing companies to take the lead in solving the foreclosure crisis and help homeowners stay in their homes. But banks, mortgage lenders and servicing companies have little incentive to take money out of their own pockets.
It's clear from the data that the home buyer tax credit was an idea that did provide some stimulation to housing sales, even though interest rates were a bit higher at the time. But when the home buyer tax credit ended, so did the improvement in home sales numbers. It's obvious that this tax credit could help stimulate home sales, yet the government seems to have no intentions of bringing it back. Perhaps the individual states, especially those hardest hit by the the housing down-turn should consider some home buyer and home owner tax credits at the state level.
Also, any county in the U.S. with a higher than normal foreclosure rate should strictly avoid increasing property taxes. Property tax increases were one of the significant factors that led to the foreclosure crisis in the first place.
Making homes easier to own and pay for will be critical to any housing recovery. There is little chance that aging baby boomers will be able to expect significant increases in income during the working years they have left. With the majority of the boomer generation now over 50 years of age, boomers are beginning to hit retirement age in large numbers. Without this generation to fuel a housing recovery the way they have in the past, interest rates become a moot point. It's about the income, or lack of it. It's a systemic problem that will be difficult to solve in the short term. But one thing is for certain, reducing the interest rate to finance an item we already can't afford to buy won't do much good.